Certain of the above travel expenses are subject to

Certain of the above travel expenses are subject to an arbitrary reasonableness test which limits the
amount that can be deducted against employment income.
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The imposed limits are subject to regular
changes. Currently, the maximum cost of an automobile available for capital cost allowance is $30,000
plus federal and provincial sales tax. If an automobile is leased, the maximum lease deduction is $800
plus federal and provincial sales tax per month. The deduction for interest paid on a loan to finance the
acquisition of an automobile is limited to an average of $300 per month. And the deduction for meals
incurred during travel is limited to 50% of the actual costs incurred. (Specifically, the Income Tax
Act restricts the amount of the deduction for any “food and beverages consumed or entertainment
enjoyed” to 50% of amounts actually paid . If the actual costs are unreasonably high, the deduction is
limited to 50% of what is reasonable. This applies to all taxpayers and to all types of income. See Chapter
9.)
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There is no requirement that the travel costs be incurred away from the metropolitan area of the
employer; consequently, costs incurred within the employer’s city or town are acceptable for deduction.
An exception is meals—an employee must be travelling away from the metropolitan area of the employer
for at least 12 hours for this cost to be deductible.
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Employees must fulfill all of the three criteria mentioned earlier to be eligible to deduct travel costs. In
addition, to the extent the employee is reimbursed, the expenses deducted must be reduced accordingly.
Situation:
An employee is required to use her own automobile for employment duties. She acquired a new car at the
beginning of the year for $40,000 (including GST and PST of 8%) and during the year incurred the
following expenses:
Gasoline $2,200
Repairs and maintenance 400

Insurance and registration 800
Meals while away from the office ($200 relates to out-of-town
travel)
420
Parking during employment duties 300
Interest on loan to acquire car 3,900
During the year, the employee drove 26,000 km, of which 14,000 were for employment duties and the
remaining 12,000 were personal.
Analysis:
First of all, note that some of these expenses are related to both personal and employment activities (e.g.,
gasoline). Others are related only to employment activities (e.g., parking). Also, meal costs were entirely
personal, as the employee had to eat whether she was working or not. Remember, however, that meal
costs while travelling out of town can be deducted, provided that the time away is greater than 12 hours.
The cost of an automobile can be deducted in the form of capital cost allowance (see Chapter 6). The
designated capital cost allowance rate for automobiles is 30%, except in the first year when it is only 15%.